Mississippi Settles Some Tobacco Claims for $15M

Mississippi’s attorney general says the nation’s largest tobacco company will pay the state $15 million to settle claims that it was underreporting the number of cigarettes it was shipping to the state.

Attorney General Jim Hood announced the settlement with Reynolds American of Winston-Salem, North Carolina on June 22. Reynolds American succeeded two companies that Mississippi raised claims against – R.J. Reynolds and Brown & Williamson.

In doing so, Hood agreed to take less money than a Jackson County chancery judge had ruled was due to Mississippi. Reynolds American had acknowledged in stock filings that it could owe at least $18.8 million.

In 2005, Mississippi claimed Brown & Williamson was cheating under the 1997 settlement between the state and major tobacco companies by making cigarettes for Star Tobacco, a unit of Star Scientific, and not reporting profits or shipments.

In 2011, a Mississippi chancery judge ruled that Brown & Williamson owed $8.1 million for underpayments and accumulated interest. The court also named a special master to account for the benefit Brown & Williamson received. After that report was compiled, the court ordered Brown & Williamson to pay $10.8 million to Mississippi.

Separately, in 2010, Hood claimed R.J. Reynolds wasn’t reporting some shipments and hadn’t properly reported profit. Reynolds won part of that case but it was found in 2014 that Reynolds should pay $8 million on other issues.

Star Scientific later abandoned selling cigarettes. Virginia Gov. Bob McDonnell and his wife were convicted in September on charges of doing favors for Star Scientific CEO Jonnie Williams in exchange for more than $165,000 in gifts and loans. According to testimony at the McDonnells’ six-week trial, the governor arranged meetings with administration officials for Williams, who was seeking state-financed research on his company’s signature product, the tobacco-derived anti-inflammatory Anatabloc. The first couple also attended events promoting Anatabloc and hosted a product launch event.

Mississippi typically deposits tobacco money in its health care trust fund. That money was supposed to be a savings account that would be used long term to supplement public health care costs in Mississippi, but in 2005 lawmakers began using it to cover deficits in the state-federal Medicaid program. Today, all the tobacco money is used to supplement annual budgets.

The case was handled for Mississippi by private lawyers, including Lee Young and Matthew Mestayer, under an agreement Hood signed with them in 2009. In typical fee agreements that Hood signs with private lawyers today, they would be due $3.5 million. However, their agreement makes reference to two separate fee schedules, neither of which is posted with the agreement on the attorney general’s website.

“The lawsuit was brought at no cost to the state, as the tobacco companies agreed in 1997 to the pay the state attorneys’ fees anytime it becomes necessary to go to court to enforce the settlement,” Hood said in a statement.

Hood’s selection of private lawyers to handle state business has been an irritant for critics of the Democrat, who claims his favored lawyers provide political support.